The Market Is Quick To Buy War, LFG Daily - March 2nd, 2026

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Luke Lloyd, CEO Lloyd Financial Group

With headlines over the weekend, I’ll leave it to the investment team this morning!

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Colin Symons, CIO Lloyd Financial Group

I remember how the stock market worked when I started in this business in the previous millennium. I like how it worked, then, I was comfortable with it. I’d say it was much more about understanding financials and how they could change, going forward. Unfortunately, I think how the market works now is fundamentally different, now.

I think the book; The Rise of Carry explains modern markets well. A willingness to use carry strategies, where you engage in activities that are essentially short volatility, like leveraged trading or shorting options, is much more common. One of the things that really encourages carry trading is the government constantly bailing markets out and providing liquidity. Gentle markets make carry trading a lot easier.

I may not like it, but it’s good to know what environment you’re trading in. One ‘feature’ of carry markets is steady profits punctuated by sharp losses when something unexpected happens and volatility spikes. We recently had one of those carry trade unwind events perhaps best shown by silver, which rippled across markets.

What happens after a carry trade unwind? First, everyone gets washed out, then we inevitably start building back a new carry trade regime. Don’t hate the player, hate the game, right? As long as the conditions are there to support a carry trade regime, investors are conditioned to go back to that.

I tend to think of a carry trade regime like a human learning how to walk. In the toddler phase, the market is unsteady and uncertain, with plenty of spills. Mind those sharp corners!

Eventually, the toddler gets better at walking, more steady on their feet. Eventually, the kid starts skipping and running. Maybe they even get into sports, forcing parents to find a comfortable spot on the bleachers. From fragility to stability.

Similarly, carry trades start to form while markets are still cooling down, so volatility and trends are relatively uncertain. That’s what we’re seeing now. Volatility can’t seem to calm down, and investors are tentatively latching onto trends. Is oil the place to be? Software? Value? Where will this new trend assert?

To be clear, we’re not even solidly out of the woods, yet. Financials (XLF) where hit hard yesterday, probably with the excuse of inflation fears, private credit concerns, and the yield curve. We also had the Iranian conflict over the weekend. While the market was well-hedged for that event, it should help keep volatility elevated until investors start looking for what comes afterwards. We’re in the toddler phase.

Most likely, a new trend will develop. Volatility will come down and stability will increase as more investors pile in, helping to keep the trend intact. Liquidity expands and it becomes the “obvious” trade. Then it probably goes too far, we crash spectacularly, then decide what to ride, next.

The key point, to me, is that we’re early in this setup. Thus, you have the elevated volatility. Investor are deciding where they want to place their bets. Is safety the name of the game and we should buy bonds and similar safe investments? Is reshoring going to make cyclicals the place to be? Is tech still the growth engine you want to ride?

Of course, no one knows, but that’s the game that’s getting played. Personally, I’d say the last carry trade bust wasn’t an overly big one, just positioning shifts, so there wasn’t a whole lot of damage done. I’d expect in the weeks to come; we should start to see volatility relax and stability improve, even with war headlines. I do think the carry trade regime is a good framework to keep in mind, though. Right now, we’re still fragile, so loosen those grips on the handlebars to try and avoid doing something you may later regret.

PPI was 0.5% m/m vs. exp. 0.3% and Core was 0.8% vs. exp. 0.5%. Pretty hot, and that will raise PCE inflation. Interestingly, it was entirely Services inflation. Goods inflation was -0.3% m/m.

Chicago PMI was 57.7 vs. exp. 52.5 on strong New Orders, Employment, and Production.

Tech sector (XLK) short interest hit a new high for this decade.

With the war headlines, often the morning gets puked then gets bought (”buy on the sound of cannons.”) We’ll see what happens. With Trump setting expectations by saying war could last four weeks, we may have some investors more ready to sell, but it helps that the market was already well hedged.

Predictably, gold, oil ,the dollar, and silver are up, while stocks are down. Interesting that bonds aren’t getting the safe haven bid, but they’ve been climbing all month, plus inflation fears are spiking. The bigger question is where we are tonight and at the end of the week?

Corporate loans continue to see some stress as AI fears continue.

Berkshire Hathaway was -2% as weak insurance operations helped create a -30% decline in income.

ISM Manufacturing PMI, today.

What does it all mean? For how long and how much do we sell off? The market was well hedged and often the market is quick to buy war

Don’t leave your financial future up to chance. Let’s build a plan that gives you confidence today and peace of mind for tomorrow. Click here to schedule a meeting — I’m here to help you take the next step toward financial freedom.

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